What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 246 added, 125 removed, 180 unchanged (67% of the section changed)

13 unchanged sentences

Impact of Global COVID-19 Pandemic

Since the global COVID-19 pandemic began we have taken proactive measures for the safety of our guests, employees and animals, to manage costs and expenditures, and to provide liquidity.

In compliance with government restrictions, we temporarily closed all of our theme parks effective March 16, 2020.

Beginning in June 2020, we began the phased reopening of some of our parks with capacity limitations and modified/limited operations.

By August 2020, we had reopened 10 of our 12 parks on a limited basis.

See further discussion relating to the capacity limitations for some of our parks in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

At the start of the first quarter of 2021, seven of our 12 parks were open, compared to eight of our 12 parks at the start of 2020.

At the end of the first quarter of 2021, 10 of our 12 parks were open, compared to all of our parks temporarily closed at the end of the first quarter of 2020.

We continue to operate all of our open parks with capacity limitations and modified/limited operations.

In response to the COVID-19 pandemic, we have implemented enhanced health and safety protocols for our parks including capacity limitations, increased cleaning measures, physical distancing practices, face covering requirements and temperature screening of both guests and employees.

Additionally, we have managed the number of operating days and operating hours by park to optimize cash flow.

We also continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives.

Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business as we return to normalized operations.

With approved vaccines being distributed, we anticipate public health conditions, the operating environment and capacity limitations to improve;

however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .

We have also experienced recent challenges in meeting our seasonal staffing goals due in part to COVID-19 related and other factors.

In response to the global COVID-19 pandemic and in compliance with government restrictions, we temporarily closed all of our theme parks effective March 16, 2020.

Beginning in June 2020, we began the phased reopening of some of our parks with capacity limitations and/or modified/limited operations and by the end of June 2020, we had reopened seven of our 12 parks on a limited basis.

See further discussion in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Due to the COVID-19 pandemic, we implemented enhanced health and safety protocols for our parks including capacity limitations, increased cleaning measures, physical distancing practices, face covering requirements and temperature screening of both guests and employees.

During the second quarter of 2021, based on revisions to federal, state and local guidelines, we modified some of these protocols.

In particular, we are no longer requiring face coverings for guests who are fully vaccinated and fully vaccinated employees working in outdoor areas.

We have also discontinued temperature screenings at all of our parks.

Additionally, in July 2021, excluding our reservations-only Discovery Cove park, we suspended the requirement for our guests to use our reservation system, providing guests more flexibility in planning their visit.

At the start of 2021, seven of our 12 parks were open, compared to eight of our 12 parks at the start of 2020.

At the start of the second quarter of 2021, 10 of our 12 parks were open but operating with capacity limitations or modified/limited operations.

By the end of the second quarter 2021, all of our parks were open and operating without COVID-19 related capacity limitations.

We continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives.

As approved vaccines continue to be distributed, public health conditions, the operating environment and capacity limitations have improved;

however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, group events, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .

Due in part to the current overall labor market and COVID-19 related factors, we have experienced and may continue to experience challenges in meeting our seasonal staffing goals, which could impact operations.

These staffing challenges have led to wage pressures in select markets for select roles during the quarter.

These wage pressures were more than offset by cost savings initiatives.

For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section which follows.

For other factors concerning the global COVID-19 pandemic, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Leadership Changes

On May 6, 2021, we announced our Board of Directors (the “Board”) appointed Marc G.

Swanson, who had been serving as the Company’s Interim Chief Executive Officer, to serve as Chief Executive Officer and Elizabeth C.

Gulacsy, who had been serving as the Company’s Interim Chief Financial Officer and Treasurer, to serve as our Chief Financial Officer and Treasurer.

Both roles are effective immediately.

Separately, on April 26, 2021, we announced the appointment of Christopher Yarris as Chief Accounting Officer of the Company effective on such date.

Principal Factors and Trends Affecting Our Results of Operations

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We calculate admission per capita as total admissions revenue divided by total attendance.

Admission per capita is primarily driven by ticket pricing, the admissions product mix and the park attendance mix, among other factors.

Admission per capita is primarily driven by ticket pricing, the admissions product mix (including the impact of pass visitation rates), and the park attendance mix, among other factors.

The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests.

A higher mix of complimentary tickets will lower our admissions per capita.

Pass visitation rates are the number of visits per pass.

A higher number of visits per pass would yield a lower admissions per capita as the revenue is recognized over more visits.

The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.

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The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.

As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets, has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines for adults and children, and overall public safety sentiment.

As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets and certain guests has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines for adults and children, and overall public safety sentiment.

We continuously monitor factors impacting our attendance, making strategic operations, marketing and sales adjustments as necessary.

3 unchanged sentences

The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our culinary or other in-park offerings.

As a result of the impact of the COVID-19 pandemic on our business, costs and expenses as a percent of revenue for the three months ended March 31, 2021 and 2020, are not necessarily indicative of costs and expenses as a percent of revenue for any future period, due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, as well as certain costs associated with the COVID-19 pandemic.

See the “ Impact of Global COVID-19 Pandemic ” section for further details.

For other factors affecting our costs and expenses, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

A s a result of the impact of the COVID-19 pandemic on our business , costs and expenses as a percent of revenue for the three and six months ended June 30 , 202 1 and 2020 , are not necessarily indicative of costs and expenses as a percent of revenue for any future period , due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels , as well as certain costs associated with the COVID-19 pandemic.

For other factors affecting our costs and expenses, see the “ Impact of Global COVID-19 Pandemic ” section and the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Additionally, we maintain valuation allowances for certain deferred tax assets which rely on estimates and assumptions on future financial performance, which may need to be adjusted in the future.

See Note 4–Income Taxes in our notes to the unaudited condensed consolidated financial statements for further details.

The theme park industry is seasonal in nature.

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Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.

Due in part to the temporary park closures, capacity limitations and modified/limited operations, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future.

Due in part to the temporary park closures, capacity limitations and/or modified/limited operations, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future.

Furthermore, any changes to the operating schedule of a park such as increasing operating days for our seasonal parks, could impact seasonality in the future.

During the first quarter of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

During the first six months of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

See “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Results of Operations

Our results for the three months ended March 31, 2021 are not directly comparable to the three months ended March 31, 2020 primarily due to temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic.

Our results for the three and six months ended June 30, 2021 are not directly comparable to the three and six months ended June 30, 2020 primarily due to temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic.

Our business continues to be impacted by the COVID-19 pandemic;

however, we have seen improvement in operating results during the three months ended March 31, 2021 due in part to strategic measures we have taken both before and during the COVID-19 pandemic.

See “Attendance” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

however, we have seen improvement in operating results during the three and six months ended June 30, 2021 due in part to an improving operating environment along with the impact of strategic measures we have taken both before and during the COVID-19 pandemic.

See “ Impact of Global COVID-19 Pandemic ” and “Attendance” for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 20 20

The following table presents key operating and financial information for the three months ended March 31, 2021 and 2020:

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table presents key operating and financial information for the three months ended June 30, 2021 and 2020:

For the Three Months Ended

Summary Financial Data:

(In thousands, except per capita data and %)

(In thousands, except per capita data)

Net revenues:

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Total costs and expenses

Operating loss

Other (income) expense, net

Operating income (loss)

Other expense (income), net

Interest expense

Loss before income taxes

Benefit from income taxes

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Total revenue per capita

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Admissions revenue .

Admissions revenue for the three months ended March 31, 2021 increased $5.3 million, or 5.8%, to $95.8 million as compared to $90.5 million for the three months ended March 31, 2020.

The improvement was a result of an increase in admissions per capita partially offset by a decline in attendance.

Admission per capita increased by 10.8% to $43.25 for the first quarter of 2021 compared to $39.05 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter.

Total attendance for the first quarter of 2021 decreased by approximately 0.1 million guests, or 4.5%, when compared to the prior year quarter.

Attendance declined due to COVID-19 related impacts including capacity limitations and modified/limited operations, partially offset by an increase of 34% more operating days in the first quarter of 2021 compared to the first quarter of 2020 due in part to the temporary park closures which fell during the spring break period in 2020 at most of our parks.

Admissions revenue for the three months ended June 30, 2021 increased $233.5 million to $243.2 million as compared to $9.8 million for the three months ended June 30, 2020.

The increase in admissions revenue was primarily a result of an increase in attendance of approximately 5.5 million guests, along with an increase in admission per capita.

Attendance during the three months ended June 30, 2021 benefitted from an increase in demand and operating days resulting from a return to more normalized operations when compared to the second quarter of 2020, which was significantly impacted by the temporary park closures.

Admission per capita increased by 16.5% to $41.87 for the three months ended June 30, 2021 compared to $35.94 in the three months ended June 30, 2020.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the net impact of the park and admissions product mix when compared to the prior year quarter due in part to limited operating days and temporary park closures.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended March 31, 2021 increased $13.1 million, or 20.8%, to $76.1 million as compared to $63.1 million for the three months ended March 31, 2020, primarily as a result of an increase in in-park per capita spending, partially offset by the decline in attendance as discussed above.

In-park per capita spending increased by 26.4% to $34.38 in the first quarter of 2021 compared to $27.20 in the first quarter of 2020, primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.

Food, merchandise and other revenue for the three months ended June 30, 2021 increased $188.3 million to $196.6 million as compared to $8.3 million for the three months ended June 30, 2020.

The increase results primarily from the increase in attendance discussed above, along with an increase in in-park per capita spending.

In-park per capita spending increased by 11.6% to $33.84 in the three months ended June 30, 2021 compared to $30.33 in the three months ended June 30, 2020.

In-park per capita spending improved primarily due to increased guest spending, new or enhanced and expanded in-park offerings, an improved product mix, higher realized prices and a strong consumer demand environment during the quarter.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended March 31, 2021 increased $1.8 million, or 14.0%, to $14.9 million as compared to $13.1 million for the three months ended March 31, 2020, primarily due to the increase in related revenue.

These costs represent 19.6% and 20.8% of the related revenue earned for the three months ended March 31, 2021 and 2020, respectively.

The decrease as a percent of related revenue partly relates to the impact of higher realized prices on some of our in-park products.

Costs of food, merchandise and other revenues for the three months ended June 30, 2021 increased by $33.0 million to $34.2 million as compared to $1.2 million for the three months ended June 30, 2020, primarily due to the increase in related revenue.

These costs represent 17.4% and 14.0% of the related revenue earned for the three months ended June 30, 2021 and 2020, respectively.

The increase as a percent of related revenue primarily reflects a return to more normalized operations and a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products.

Compared to previous years, these costs as a percent of related revenue for the three months ended June 30, 2019 and 2018, were 18.0% and 19.2%, respectively.

Operating expenses.

Operating expenses for the three months ended March 31, 2021 decreased $25.2 million, or 19.0% , to $107.8 million as compared to $133.0 million for the three months ended March 31, 2020 .

The decrease primarily relates to a net reduction in labor-related costs and other operating costs resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations , which more than offset the impact of additional operating days during the first quarter of 2021 and incremental operating expenses associated with our response to the COVID-19 pandemic .

Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses as a percent of revenue are not comparable to the prior year period primarily due to the impact of the temporary park closures in 2020.

Operating expenses for the three months ended June 30, 2021 increased by $98.3 million, or 166.4% , to $157.3 million as compared to $59.0 million for the three months ended June 30, 2020 .

Operating expenses in the prior year period were significantly impacted by the temporary park closures, which resulted in furloughing approximately 95% of our employees and eliminating or deferring all non-essential operating expenses while the parks were closed.

As a result, t he in crease in operating expenses during the second quarter of 2021 primarily results from a return to more normalized operations with all 12 parks open compared to only 7 parks which reopened in June 2020 with limited/modified operations.

In particular, operating expenses increased largely due to labor-related costs to staff all 12 open parks , partially offset by structural cost savings initiatives when compared to the prior year quarter .

O perating expenses as a percent of revenue were 35.8% for the three months ended June 30, 2021 and are not comparable to the prior year period primarily due to the impact of certain operating costs in 2020 which are not dependent on attendance levels .

Compared to previous years, operating expenses as a percent of revenue for the three months ended June 30, 2019 and 2018, were 42.0% and 48.5%, respectively.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended March 31, 2021 increased $4.5 million, or 16.7%, to $31.5 million as compared to $27.0 million for the three months ended March 31, 2020.

Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses decreased by approximately $8.0 million primarily related to a reduction in marketing related costs due in part to cost savings initiatives and the impact of COVID-19 modified/limited operations and a decrease in legal costs.

Selling, general and administrative expenses for the three months ended June 30, 2021 increased $22.1 million, or 104.7%, to $43.2 million as compared to $21.1 million for the three months ended June 30, 2020.

The increase primarily relates to increased marketing related costs resulting from a return to more normalized operations in the second quarter of 2021 as we substantially eliminated all marketing related costs while the parks were closed in 2020.

Selling, general and administrative expenses were also impacted by an increase in labor-related costs when compared to the prior year quarter which included the impact of furloughs due to the temporary park closures, partially offset by the impact of cost savings and efficiency initiatives.

Selling, general and administrative expenses as a percent of revenue were 9.8% for the three months ended June 30, 2021 and is not comparable to the prior year period primarily due to the impact of the temporary park closures.

Compared to previous years, selling, general and administrative expenses as a percent of revenue for the three months ended June 30, 2019 and 2018, were 16.6% and 18.1%, respectively.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended June 30, 2021 declined by $1.7 million, or 4.5%, to $36.2 million as compared to $37.9 million for the three months ended June 30, 2020.

The decrease primarily relates to a decline in new asset additions along with the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the three months ended June 30, 2021 increased $9.2 million, or 42.1%, to $31.1 million as compared to $21.9 million for the three months ended June 30, 2020.

The increase primarily relates to interest on the Senior Notes issued in April 2020 and the Second-Priority Senior Secured Notes issued in August 2020, partially offset by reduced interest related to the Revolving Credit Facility, which was undrawn in 2021, and the impact of interest rate swap agreements which expired in the second quarter of 2020.

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “Our Indebtedness” section which follows for further details.

Provision for income taxes.

Income taxes in the three months ended June 30, 2021 was a provision of $8.5 million compared to $7.9 million for the three months ended June 30, 2020.

Our consolidated effective tax rate was 6.2% for the three months ended June 30, 2021 compared to -6.4% for the three months ended June 30, 2020.

The effective tax rate was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts of equity-based compensation.

Supplemental comparison of the three months ended June 30, 2021 to the three months ended June 30, 2019

We believe a comparison of selected financial results for the three months ended June 30, 2021 to the three months ended June 30, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business.

As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended June 30, 2021 compared to the three months ended June 30, 2019.

The selected summary financial data for the three months ended June 30, 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2019.

For the Three Months Ended

Summary Financial Data:

(In thousands, except per capita data)

Net revenues:

Food, merchandise and other

Total revenues

Selected Costs and expenses:

Cost of food, merchandise and other revenues

Operating expenses (exclusive of depreciation and amortization)

Selling, general and administrative expenses

Total revenue per capita

Admission per capita

In-park per capita spending

Admissions revenue .

Admissions revenue for the three months ended June 30, 2021 increased $15.4 million, or 6.8%, to $243.2 million as compared to $227.8 million for the three months ended June 30, 2019.

The increase in admissions revenue was primarily a result of an increase in admissions per capita, partially offset by a decrease in attendance of approximately 0.7 million guests, or 10.1%.

Attendance declined when compared to 2019 primarily due to COVID-19 related impacts including capacity limitations and/or modified/limited operations at our parks for some of the quarter.

Admission per capita increased by 18.8% to $41.87 in 2021 compared to $35.25 in 2019.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to the second quarter of 2019.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended June 30, 2021 increased $18.4 million, or 10.3%, to $196.6 million as compared to $178.2 million for the three months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance as discussed above.

In-park per capita spending increased by 22.7% to $33.84 in the second quarter of 2021 compared to $27.57 in the second quarter of 2019.

In-park per capita spending improved primarily due to increased guest spending, higher realized prices and fees, an improved product mix, new or enhanced and expanded in-park offerings, and a strong consumer demand environment during the quarter.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended June 30, 2021 increased $2.2 million, or 6.8%, to $34.2 million as compared to $32.0 million for the three months ended June 30, 2019, primarily due to an increase in volume.

These costs represent 17.4% and 18.0% of the related revenue earned for the three months ended June 30, 2021 and 2019, respectively.

The decrease as a percent of related revenue partly relates to the impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products.

Operating expenses.

Operating expenses for the three months ended June 30, 2021 decreased $13.1 million, or 7.7%, to $157.3 million as compared to $170.4 million for the three months ended June 30, 2019.

The decrease is primarily due to a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of modified/limited operations due to COVID-19 for most of the quarter.

Operating expenses were 35.8% of total revenues for the three months ended June 30, 2021 compared to 42.0% for the three months ended June 30, 2019.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended June 30, 2021 decreased $24.0 million, or 35.7%, to $43.2 million as compared to $67.2 million for the three months ended June 30, 2019.

The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives.

As a percentage of total revenue, selling, general and administrative expenses were 9.8% for the three months ended June 30, 2021 compared to 16.6% for the three months ended June 30, 2019.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table presents key operating and financial information for the six months ended June 30, 2021 and 2020:

For the Six Months Ended

Summary Financial Data:

(In thousands, except per capita data)

Net revenues:

Food, merchandise and other

Total revenues

Costs and expenses:

Cost of food, merchandise and other revenues

Operating expenses (exclusive of depreciation and amortization shown separately below)

Selling, general and administrative expenses

Severance and other separation costs

Depreciation and amortization

Total costs and expenses

Operating income (loss)

Other expense (income), net

Interest expense

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Total revenue per capita

Admission per capita

In-park per capita spending

NM-Not Meaningful.

Admissions revenue .

Admissions revenue for the six months ended June 30, 2021 increased $238.7 million to $339.0 million as compared to $100.3 million for the six months ended June 30, 2020.

The improvement was a result of an increase in attendance and in admissions per capita.

Total attendance for the first six months of 2021 increased by approximately 5.4 million guests when compared to the first six months of 2020.

Attendance improved primarily due to an increase in demand and operating days resulting from a return to more normalized operations in the first six months of 2021 compared to the first six months of 2020, which was significantly impacted by the temporary park closures.

The increase in operating days more than offset unfavorable impacts on attendance from COVID-19 related impacts including capacity limitations and modified/limited operations for most of the first half of 2021.

Admission per capita increased by 9.2% to $42.25 for the six months ended June 30, 2021 compared to $38.70 for the six months ended June 30, 2020, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, partially offset by the net impact of the park and admissions product mix when compared to the prior year period.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the six months ended June 30, 2021 increased $201.4 million to $272.7 million as compared to $71.3 million for the six months ended June 30, 2020.

The increase largely results from the increase in attendance discussed above.

In-park per capita spending increased by 23.5% to $33.99 for the six months ended June 30, 2021 compared to $27.52 for the six months ended June 30, 2020.

In park per capita increased due to the impact of new or enhanced and expanded in-park offerings, increased guest spending, an improved product mix, higher realized prices and a strong consumer demand environment when compared to the prior year period.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the six months ended June 30, 2021 increased $34.9 million to $49.1 million as compared to $14.3 million for the six months ended June 30, 2020.

The increase primarily relates to the increase in attendance as discussed above.

These costs represent 18.0% and 20.0% of the related revenue earned for the six months ended June 30, 2021 and 2020, respectively.

The decrease as a percent of related revenue primarily relates to the impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products.

Compared to previous years, these costs as a percent of related revenue for the six months ended June 30, 2019 and 2018, were 18.2% and 19.3%, respectively.

Operating expenses.

Operating expenses for the six months ended June 30, 2021 increased by $73.0 million, or 38.0% , to $265.1 million as compared to $192.0 million for the six months ended June 30, 2020 .

The in crease primarily relates to a net increase in labor-related and other operating costs resulting from the impact of additional operating days due to a return to more normalized operations in 2021, partially offset by structural cost savings initiatives .

The prior year period was significantly impacted by labor-related reductions due to furloughs and other nonessential operating cost reductions resulting from the temporary park closures .

Operating expenses as a percent of revenue were 43.3% for the six months ended June 30, 2021 and are not comparable to the prior year period primarily due to the impact of certain operating costs in 2020 which are not dependent on attendance levels.

Compared to previous years, operating expenses as a percent of revenue for the six months ended June 30, 2019 and 2018, were 51.1% and 56.7%, respectively.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the six months ended June 30, 2021 increased $26.6 million, or 55.3%, to $74.7 million as compared to $48.1 million for the six months ended June 30, 2020.

Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses increased by approximately $14.1 million primarily due to increased non-cash equity compensation expense, increased labor-related costs resulting from the impact of furloughs in the prior year period and increased marketing-related costs, partially offset by the impact of cost savings and efficiency initiatives.

The legal settlement proceeds in the prior year period related to approximately $12.5 million received related to a legal matter.

See Note 9–Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Selling, general and administrative expenses as a percent of revenue were 12.2% for the six months ended June 30, 2021 and is not comparable to the prior year period primarily due to the impact of the temporary park closures.

Compared to previous years, selling, general and administrative expenses as a percent of revenue for the six months ended June 30, 2019 and 2018, were 17.6% and 22.1%, respectively.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended March 31, 2021 decreased $1.5 million, or 3.8%, to $36.6 million as compared to $38.0 million for the three months ended March 31, 2020.

The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.

Depreciation and amortization expense for the six months ended June 30, 2021 decreased $3.1 million, or 4.1%, to $72.8 million as compared to $76.0 million for the six months ended June 30, 2020.

The decrease primarily relates to a decline in new asset additions along with the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the three months ended March 31, 2021 increased $11.8 million, or 61.6%, to $31.0 million as compared to $19.2 million for the three months ended March 31, 2020.

The increase primarily relates to interest related to the Senior Notes issued in April 2020 and the Second-Priority Senior Secured Notes issued in August 2020, partially offset by the impact of decreased LIBOR rates.

Interest expense for the six months ended June 30, 2021 increased $21.0 million, or 51.2%, to $62.1 million as compared to $41.1 million for the six months ended June 30, 2020.

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “ Our Indebtedness ” section which follows for further details.

Benefit from income taxes.

Benefit from income taxes in the three months ended March 31, 2021 was $5.1 million compared to $20.2 million for the three months ended March 31, 2020.

Our consolidated effective tax rate was 10.3% for the three months ended March 31, 2021 compared to 26.3% for the three months ended March 31, 2020.

The effective tax rate decreased primarily due to non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation.

Supplemental Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2019

We believe a comparison of selected financial results for the three months ended March 31, 2021 to the three months ended March 31, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business.

As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended March 31, 2021 compared to the three months ended March 31, 2019.

The selected summary financial data for the first quarter of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for three months ended March 31, 2019.

The following table presents selected key operating and financial information for the three months ended March 31, 2021 and 2019:

For the Three Months Ended March 31,

Provision for (benefit from) income taxes.

Income taxes for the six months ended June 30, 2021 was a provision of $3.3 million compared to a benefit of $12.3 million for the six months ended June 30, 2020.

Our consolidated effective tax rate was 3.8% for the six months ended June 30, 2021 compared to 6.2% for the six months ended June 30, 2020.

The effective tax rate decreased primarily due to non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts on equity-based compensation.

See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Supplemental comparison of the six months ended June 30, 2021 to the six months ended June 30, 2019

We believe a comparison of selected financial results for the six months ended June 30, 2021 to the six months ended June 30, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business.

As such, the following supplemental discussion provides an analysis of selected operating results for the six months ended June 30, 2021 compared to the six months ended June 30, 2019.

The selected summary financial data for the first six months of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2019.

For the Six Months Ended

Selected Summary Financial Data:

(In thousands, except per capita data and %)

(In thousands, except per capita data)

Net revenues:

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Admissions revenue .

Admissions revenue for the three months ended March 31, 2021 decreased $33.1 million, or 25.7%, to $95.8 million as compared to $128.9 million for the three months ended March 31, 2019.

Admissions revenue for the six months ended June 30, 2021 decreased $17.7 million, or 5.0%, to $339.0 million as compared to $356.7 million for the six months ended June 30, 2019.

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 1.8 million guests, or 18.1%, partially offset by an increase in admission per capita.

Attendance declined when compared to 2019 due to COVID-19 related impacts including capacity limitations and modified/limited operations at all of our open parks.

Attendance declined when compared to 2019 primarily due to COVID-19 related impacts including capacity limitations and modified/limited operations at our parks for most of the first six months of 2021.

Admission per capita increased by 16.1% to $42.25 in 2021 compared to $36.39 in 2019.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the first quarter of 2019.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended March 31, 2021 decreased $15.5 million, or 16.9%, to $76.1 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of a decrease in attendance as discussed above, partially offset by an increase in in-park per capita spending.

In-park per capita spending increased by 25.3% to $34.38 in the first quarter of 2021 compared to $27.44 in the first quarter of 2019.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.

Food, merchandise and other revenue for the six months ended June 30, 2021 increased $2.9 million, or 1.1%, to $272.7 million as compared to $269.8 million for the six months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, offset by a decrease in attendance as discussed above.

In-park per capita spending increased by 23.5% to $33.99 in the first six months of 2021 compared to $27.53 in the first six months of 2019.

In-park per capita spending improved primarily due to increased guest spending, higher realized prices and fees, an improved product mix, new, enhanced or expanded in-park offerings, and a strong consumer demand environment when compared to the first six months of 2019.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended March 31, 2021 decreased $2.3 million, or 13.2%, to $14.9 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the decrease in volume.

These costs represent 19.6% and 18.8% of the related revenue earned for the three months ended March 31, 2021 and 2019, respectively.

The increase as a percent of related revenue partly relates to a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products.

Costs of food, merchandise and other revenues for the six months ended June 30, 2021 decreased $0.1 million, or 0.2%, to $49.1 million as compared to $49.2 million for the six months ended June 30, 2019, primarily due to the decrease in volume.

These costs represent 18.0% and 18.2% of the related revenue earned for the six months ended June 30, 2021 and 2019, respectively.

Operating expenses.

Operating expenses for the three months ended March 31, 2021 decreased $42.1 million, or 28.1%, to $107.8 million as compared to $149.9 million for the three months ended March 31, 2019.

The decrease largely results from a reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations, partially offset by incremental operating expenses associated with our response to the COVID-19 pandemic.

Operating expenses for the six months ended June 30, 2021 decreased $55.2 million, or 17.2%, to $265.1 million as compared to $320.3 million for the six months ended June 30, 2019.

Operating expenses were 43.3% of total revenues for the six months ended June 30, 2021 compared to 51.1% for the six months ended June 30, 2019.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $11.3 million, or 26.4%, to $31.5 million as compared to $42.8 million for the three months ended March 31, 2019.

Selling, general and administrative expenses for the six months ended June 30, 2021 decreased $35.3 million, or 32.1%, to $74.7 million as compared to $110.0 million for the six months ended June 30, 2019.

The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives.

As a percentage of total revenue, selling, general and administrative expenses were 12.2% for the six months ended June 30, 2021 compared to 17.6% for the six months ended June 30, 2019.

Liquidity and Capital Resources

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand.

Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and could include share repurchases, when permitted.

As of March 31, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.4, due in part to our outstanding cash balance at March 31, 2021.

As of June 30, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.5, due in part to our outstanding cash balance at June 30, 2021.

Historically, we typically operate with a working capital ratio less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances.

Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs.

See the “ Impact of Global COVID-19 Pandemic ” section and the “ Our Indebtedness ” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic.

See the “ Our Indebtedness ” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise.

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The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:

For the Three Months Ended March 31,

(In thousands)

For the Six Months Ended June 30,

(Unaudited, in thousands)

Net cash provided by (used in) operating activities

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Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents, including restricted cash

Net increase in cash and cash equivalents, including restricted cash

Cash Flows from Operating Activities

Net cash provided by operating activities was $18.4 million during the three months ended March 31, 2021 as compared to net cash used in operating activities of $40.8 million during the three months ended March 31, 2020.

The change in net cash provided by (used in) operating activities was primarily impacted by improved operating performance including increased sales of admission products, partially offset by the impact of increased interest payments and deferred vendor payments in the first quarter of 2021 when compared to the first quarter of 2020, which was impacted by the temporary park closures.

The deferred vendor payments in the first quarter of 2021 relate to certain vendor payments during the period, which were previously deferred in order to manage liquidity in response to the temporary park closures and limited re-openings related to the COVID-19 pandemic.

Net cash provided by operating activities was $248.1 million during the six months ended June 30, 2021 as compared to net cash used in operating activities of $68.3 million during the six months ended June 30, 2020.

The change in net cash provided by (used in) operating activities was primarily impacted by improved operating performance including increased sales of admission products, partially offset by the impact of increased interest payments in the six months ended June 30, 2021 when compared to the six months ended June 30, 2020, which was impacted by the temporary park closures.

Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure.

Net cash used in investing activities during the three months ended March 31, 2021 consisted of capital expenditures of $15.3 million largely related to future attractions.

Net cash used in investing activities during the three months ended March 31, 2020 consisted of $49.2 million of capital expenditures.

The following table presents detail of our capital expenditures for the periods indicated:

For the Three Months Ended March 31,

Net cash used in investing activities during the six months ended June 30, 2021 consisted primarily of capital expenditures of $45.0 million largely related to future attractions.

Net cash used in investing activities during the six months ended June 30, 2020 consisted primarily of $53.7 million of capital expenditures.

The following table presents detail of our capital expenditu res for the periods indicated:

For the Six Months Ended June 30,

Capital Expenditures:

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Historically, we generally expect to fund our capital expenditures through our operating cash flow.

See the “ Impact of Global COVID-19 Pandemic ” section for further details regarding proactive measures we have taken starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides.

Due to the COVID-19 pandemic, we have taken proactive measures starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides.

Cash Flows from Financing Activities

Net cash used in financing activities during the three months ended March 31, 2021 results primarily repayments on long-term debt of $3.9 million.

Net cash used in financing activities during the three months ended March 31, 2020 results primarily from net draws of $262.5 million on our revolving credit facility, partially offset by share repurchases of $12.4 million and net repayments on long-term debt of $3.9 million.

Net cash used in financing activities during the six months ended June 30, 2021 results primarily from payment of tax withholdings on equity-based compensation through shares withheld of $12.5 million and repayments on long-term debt of $7.8 million.

Net cash provided by financing activities during the six months ended June 30, 2020 results primarily from net draws on our revolving credit facility of $261.0 million and net proceeds from our Senior Notes offering of $222.3 million, partially offset by $12.4 million used to repurchase shares and repayments of $7.8 million on our long-term debt.

See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

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We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below.

As of March 31, 2021, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).

As of June 30, 2021, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).

On August 5, 2021, we announced our intention to commence the marketing of a new seven-year $1.1 billion senior secured first lien term loan facility (the “New Term Loan Facility”) and a new five-year approximately $385.0 million senior secured first lien revolving credit facility (the “New Revolving Credit Facility”).

We intend to use the proceeds from the New Term Loan Facility, together with the proceeds from a financing, which may be notes, loans or other securities, or a combination thereof, on terms satisfactory to us and in an aggregate principal amount satisfactory to us to repay all borrowings outstanding under the existing senior facilities and to pay related fees and expenses.

The closing of the New Term Loan Facility and the New Revolving Credit Facility is subject to successful marketing and other conditions, and there can be no assurance that we will close the New Term Loan Facility or the New Revolving Credit Facility (or offer the aforementioned notes) as described or at all.

See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details concerning our long-term debt.

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(“SEA”) is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”).

As of March 31, 2021, our Senior Secured Credit Facilities consisted of $1.489 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2021.

As of March 31, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $312.0 million available for borrowing under the Revolving Credit Facility.

See “Covenant Compliance” discussion which follows for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.

As of June 30, 2021, our Senior Secured Credit Facilities consisted of $1.485 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which was not drawn upon as of June 30, 2021.

As of June 30, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $312.0 million available for borrowing under the Revolving Credit Facility.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.

Senior Secured Notes

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% Senior Notes and on August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% Second-Priority Senior Notes.

On July 14, 2021, SEA redeemed $50.0 million in aggregate principal amount of the Second-Priority Senior Notes.

Covenant Compliance

As of March 31, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.

The Revolving Credit Facility requires that we comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility.

Pursuant to Amendment No.

12, among other terms, SEA is exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenants starting at the first quarter of 2022.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to the calculation beginning in the first quarter of 2022.

In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which we elect to use actual Adjusted EBITDA for purposes of calculating our financial maintenance covenant.

As of June 30, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.

See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA

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Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net loss for the periods indicated:

The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net income (loss) for the periods indicated:

SEAWORLD ENTERTAINMENT, INC.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended March 31,

Last Twelve Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Last Twelve Months Ended

(Unaudited, in thousands)

Benefit from income taxes

Net income (loss)

Provision for (benefit from) income taxes

Interest expense

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Adjusted EBITDA, after cost savings (h)

Reflects non-cash equity compensation expenses associated with the grants of equity compensation.

For the three months ended March 31, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered probable of vesting.

See Note 10–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.

Reflects non-cash equity compensation expenses and related cash payroll taxes incurred during the period.

For the six months ended June 30, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered probable of vesting.

See Note 10–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals.

For the twelve months ended March 31, 2021, reflects asset write-offs primarily related to certain rides and equipment which were removed from service.

For the three months ended March 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.8 million of third party consulting costs.

For the twelve months ended March 31, 2021, reflects business optimization, development and other strategic initiative costs primarily related to $2.8 million of severance and other employment costs and $1.4 million of third party consulting costs.

For the twelve months ended March 31, 2021, includes costs associated with a Registration Statement on Form S-3 filed in 2020.

For the three, six and twelve months ended June 30, 2021, primarily reflects asset write-offs and certain costs related to certain rides and equipment which were removed from service.

For the three and six months ended June 30, 2021, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $1.5 million and $1.6 million, respectively, of severance and other separation costs associated with positions eliminated and (ii) $0.4 million and $0.5 million, respectively, of third-party consulting costs.

For the six months ended June 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.9 million of third-party consulting costs.

For the twelve months ended June 30, 2021, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $4.3 million of severance and other separation costs and (ii) $1.7 million of third-party consulting costs.

For the twelve months ended June 30, 2021, includes costs associated with a Registration Statement on Form S-3 filed in 2020.

Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items.

For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures.

For the three months ended March 31, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed .

For the twelve months ended March 31, 2021, includes approximately $11.0 million of incremental non-recurring costs associated with the COVID-19 pandemic, partially offset by approximately $4.4 million related to the return of funds previously paid for a legal settlement.

For the three and six months ended June 30, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff, and operate the parks with enhanced safety measures and legal costs related to COVID-19 related matters.

For the three and six months ended June 30, 2020, includes approximately $3.9 million in incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare the parks for reopening with enhanced safety measures, incremental third-party consulting costs related to our COVID-19 response and safety communication strategies and initial purchases of personal protective equipment .

For the six months ended June 30, 2020, also includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed.

For the twelve months ended June 30, 2021, includes approximately $9.2 million or incremental non-recurring costs associated with the COVID-19 pandemic, partially offset by approximately $4.4 million related to the return of funds previously paid for a legal settlement.

See Note 9–Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements for further details.

The costs associated with the COVID-19 pandemic primarily relate to incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, legal costs related to COVID-19 related matters, and temporary or initial purchases of safety monitoring and personal protective equipment.

Adjusted EBITDA is defined as net loss before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items permitted in calculating covenant compliance under the credit agreement governing our Senior Secured Credit Facilities.

The costs associated with the COVID-19 pandemic primarily relate to incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures, legal costs related to COVID-19 related matters, temporary or initial purchases of safety monitoring and personal protective equipment and contract termination or modification costs related to impacts from the temporary COVID-19 park closures.

Adjusted EBITDA is defined as net income (loss) before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items permitted in calculating covenant compliance under the credit agreement governing our Senior Secured Credit Facilities.

The Senior Secured Credit Facilities permits the calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings we expect to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives.

These estimated savings are calculated net of the amount of actual benefits realized during such period.

These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact our reported GAAP net (loss) income.

These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact our reported GAAP net income (loss).

The Amended Credit Agreement limits the amount of such estimated savings which may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings.

The estimated cost savings included in the table above do not reflect the net annualized estimated cost savings we would have realized versus 2019 because operations during the last twelve-month period ended June 30, 2021 were significantly impacted by the COVID-19 pandemic.

The Senior Secured Credit Facilities permits our calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings as described in footnote (g) above.

Contractual Obligations

There have been no material changes to our contractual obligations as March 31, 2021 from those previously disclosed in our Annual Report on Form 10-K.

There have been no material changes to our contractual obligations as of June 30, 2021 from those previously disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of March 31, 2021.

We had no material off-balance sheet arrangements as of June 30, 2021.

Recently Issued Financial Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis